Stadshypotek set a record Swedish tight with a Eu750m seven year covered bond today (Wednesday), but bankers cited relatively slow execution and a Eu850m-plus book as evidence of the market slowing down, and questioned whether the pricing strategy of recent weeks is still applicable.

Leads Barclays, BNP Paribas, Deutsche Bank, Goldman Sachs and Svenska Handelsbanken launched the deal with guidance of the mid-swaps minus 6bp area at 9:00 CET this morning. More than three hours later, the spread was set at minus 8bp on the back of over Eu900m of demand, with the books closing at 12:45. The size was later set at Eu750m (Skr7.42bn), with a final book in excess of Eu850m.

The Svenska Handelsbanken subsidiary’s deal is understood to be the tightest post-crisis euro benchmark covered bond from Sweden.

“It’s a good trade, setting a new record spread in the Swedish market while also getting a good size out of the market, having decided to be more ambitious than the Eu500m no-grows most issuers have preferred recently,” said a syndicate banker away from the leads.

However, some bankers away from the deal noted that the execution progressed relatively slowly and that the oversubscription ratio and spread tightening was smaller than in most recent trades.

They suggested the deal’s starting point limited its momentum, estimating that the initial guidance offered a new issue premium of around 3bp – in line with the execution strategy adopted by most issuers in more constructive market conditions earlier in the month.

“From that starting point many people may have concluded that they were targeting a final price of minus 10bp-9bp,” he said. “For a non-Eurozone issuer coming at this time of the year, that would be an ambitious target, and I think now we might have to be careful about starting trades too aggressively versus secondaries.

“Given the technical conditions, all deals should produce momentum and get a lively bookbuild, but I think now we have to start acknowledging that it is late in the year, and the tightening momentum and secondary performance has gone.”

Another syndicate banker agreed that the market is slowing down, noting modest demand for a Eu250m Santander Consumer Bank Pfandbrief yesterday.

“Investors are now engaging with smaller tickets,” he said. “Stadshypotek took the same approach we saw three or four weeks ago, but now it seems investors are not so keen to get bonds at any price – some are probably already thinking about waiting five weeks and seeing what kind of spreads they can get in 2018.

“Another explanation is that this is Stadshypotek’s third appearance in the euro market this year, so appetite could be less.”

Bankers said the deal offered a new issue premium of 1bp-2bp based on recent issuance of Stadshypotek. The new issue is Stadshypotek’s first euro benchmark covered bond of the year to be backed by Swedish collateral, but is its third euro benchmark covered bond of the year overall, following a Eu500m seven year in February and a Eu500m 10 year on 24 October, both from the Finnish pool.

The Finnish collateral February 2024s were seen at minus 11bp, mid, and the November 2027s at minus 6bp. Bankers noted Stadshypotek’s Finnish-backed issuance trades only marginally wider than its Swedish outstandings.

The deal offered a more attractive premium versus Swedbank May 2024s and SEB June 2024s, bankers said, seeing both at minus 14bp, mid.

“From an investor perspective, Stadshypotek’s spread looks good to those squeezed and expensive trades,” said a syndicate banker away from the leads. “That would explain some of the interest at these levels.”

Maureen Schuller, head of financials research at ING, noted that Swedish covered bond spreads have tightened by an average of 10bp this year.

“This compares with a 8bp performance in Finnish covered bonds,” she said. “On aggregate, Swedish covered bonds currently trade at approximately comparable levels to Finnish covered bonds.

“This illustrates that the supportive impact of the CBPP3 on Eurozone covered bonds versus non-CBPP3-eligible Nordic comparables has more or less evaporated.”